Friday, August 26, 2011

Given the central role of electric power in the nation’s economy, and the importance of coal in power production, concerns have been raised recently about the cost and potential impact of regulations under development at the Environmental Protection Agency (EPA) that would impose new requirements on coal-fired power plants. Six of the rules, which have drawn much of the recent attention, are Clean Air Act regulations. Two others are Clean Water Act rules, and one is a Resource Conservation and Recovery Act rule. The majority are expected to be promulgated over the next 18 months. All together, these rules have been characterized by critics as a regulatory “train wreck” that would impose excessive costs and lead to plant retirements that could threaten the adequacy of electricity capacity (i.e., reliability of supply) across the country, especially from now through 2017.

Although some question why EPA is undertaking so many regulatory actions in such a short timeframe, supporters of the regulations assert that it is decades of regulatory delays and court decisions that have led to this point, resulting in part from special consideration given electric utilities by Congress under several statutes. Further, several of the current regulatory developments have been under consideration for a decade or longer, or are being reevaluated after an earlier action was vacated or remanded to EPA by the courts. The regulations are supported by proponents and EPA as having substantial benefits for public health and the environment.

Recent reports by industry trade associations and others have discussed potential harm of EPA’s prospective regulations to U.S. electricity generating capacity, with emphasis on coal-fired generation. One of these reports, by the Edison Electric Institute, which represents investorowned utilities, has attracted considerable attention by depicting a timeline in which multiple rules would take effect more or less simultaneously over the next five years. Congress has shown significant interest in these issues, and bills have been introduced that would de-fund or restrict EPA’s ability to develop rules, and which would legislate new regulatory analytic requirements. This report describes nine rules in seven categories that are at the core of recent critical analyses, with background on the rule and its requirements and, where possible, a discussion of the rule’s potential costs and benefits.

The EEI and other analyses discussed here generally predate EPA’s actual proposals and reflect assumptions about stringency and timing (especially for implementation) that differ significantly from what EPA actually may propose or has promulgated. Some of the rules are expected to be expensive; costs of others are likely to be moderate or limited, or they are unknown at this point because a rule has not yet been proposed. Rules when actually proposed or issued may well differ enough that a plant operator’s decision about investing in pollution controls or facility retirement will look entirely different from what these analyses project. Further, promulgation of standards is not the end of the road: court challenges are likely, potentially delaying implementation for years, and even when final, EPA rules must be adopted by states and implemented over time through state-issued permits.

The primary impacts of many of the rules will largely be on coal-fired plants more than 40 years old that have not, until now, installed state-of-the-art pollution controls. Many of these plants are inefficient and are being replaced by more efficient combined cycle natural gas plants, a development likely to be encouraged if the price of competing fuel—natural gas—continues to be low, almost regardless of EPA rules.

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